Shifts in world trade

Over the past 30 years trade has transformed the world. It has been a powerful tool for economic development and stability, delivering increased productivity, accelerating growth and rising incomes in many emerging countries.

Today, as trade continues to reshape the world, we can see important new trends. One of these is the increase in flexible supply chains, as companies source products from multiple locations.

At the end of the last century there was decisive shift in manufacturing production, as many firms chose to “off-shore” from West to East.

Now, companies are considering whether to “near-shore” or “on-shore” their production capacity. This is because businesses are becoming more sophisticated in the way they scrutinise risks and rewards.

The dynamics of labour costs are also changing. In many developing countries, particularly China, there has been a sharp rise in wages. Energy prices are also making it less attractive to transport goods long distances.

A second trend is that many economies are moving up the “value chain”. China is shifting its exports towards technology and industrial machinery and away from low-grade manufactured goods.

This opens up opportunities for nearby countries such as Vietnam to take on lower-value manufacturing and production. It also provides new opportunities for developed nations to supply sophisticated investment equipment to manufacturers.

Finally, there will be huge growth in the emerging-market middle classes. HSBC estimates that by 2050 almost three billion people will have joined the middle classes, mainly in emerging markets.

These new consumers are hungry for the brands and services that Western nations take for granted. They are also driving demand for infrastructure. Today, there are more than 80 Chinese cities with a population of more than five million that still have no underground rail system.

As countries move up the “value chain” they need to import basic commodities, building equipment and high-end machinery. These are the building blocks for vast new cities, providing homes, employment and transport for the new middle classes.

With greater flexibility in supply chains, higher-value production and the rise of a new emerging-market middle class, we are at a transformational moment in the global economy.

This article contains extracts of a speech delivered in Washington DC, US, on 29 October 2013 at an event about international trade sponsored by HSBC and hosted by Politico, a US news outlet.